The U.S. Supreme Court decided in South Dakota v. Wayfair, Inc. that the U.S. Constitution does not require a physical presence in a taxing state in order for the state to impose a sales and use tax collection obligation on an out-of-state seller. It is time to decipher what remains of the substantial nexus standard. The good news is that the Court made clear in Wayfair that a substantial nexus between the taxing state and the business that it seeks to tax is required, albeit not a physical presence bright-line. The Court framed its overruling of National Bellas Hess, Inc. v. Department of Revenue and Quill Corp. v. North Dakota as a natural progression in its Commerce Clause jurisprudence away from “arbitrary, formalistic distinction(s)” and toward “a sensitive, case-by-case analysis of purposes and effects.” Therefore, in the absence of a bright-line, formalistic substantial nexus rule, the key will be to understand the relevant factors to consider when performing a substantial nexus analysis and how these factors relate to whether a state can successfully assert a taxable nexus.
Read our newsletter to learn more about substantial nexus after Wayfair.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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